I have to park Rs 6 lac as Emergency fund.If I keep this amount in savings account I will get 4% interest but with 30% tax slab , effective Rate of interest may be 2.8% per annum.
If I keep this amount in Liquid fund I may get interest of 5 % per annum & tax deduction of 30%
My Query is
- As this is Emergency fund , I may not require the amount say for 2-3 years.In savings account at least I will get 2.8% interest which will be added in my savings annually & cumualative benefit will be there.
- In case of liquid fund , I will get amount only when I redeem the units but no annual interest like savings account.
Will I get 5% interest after 2 to 3 years ?
Let me know how liquid fund investment is better if investment is for 2-3 years.
Under Sec.80TTA, interest income from savings account up to the Rs.10,000 per year is tax-free. Hence, keep around Rs.2 lakh in savings account. By doing this, with tax-free mode of earning, your effective earning turn to be 4% itself.
Rest of the money you have to keep in liquid funds. Reason is that we can expect more than savings account interest rate. Also, if you held this money for more than 3 years (assuming you not faced any emergency during 3 years), then liquid funds give an edge over savings account.
I usually suggest like 1/3 in savings account, 1/3 in an eFD of a year and another 1/3 in liquid funds.
Parking emergency corpus means your concentration should be how fastly I can have access to fund rather than how much return I can generate.